Taxation is a source of revenue to Governments. Plus, there are a lot of benefits are derived from taxation which helps in improving a country economic system. Thus, this calls for the government to derive a good tax system to fix the needs of both the country and society. Some of the principles of a good tax system include the following.
7 Principles of a Good Tax system
1. The principle of Equity
The government should exercise equity while designing a good tax system. Individuals should be tasked based on the amount of income they earn. Those that earn a lot of money should be taxed based on the large income earned an individual who earns less amount of money should be tax proportional to the income earned.
2. The principle of Flexibility
A good tax system should be flexible in order to meet the needs of the society. The amount of tax charged should not be the same all year round. When the government is in a boom economic cycle, the government should lower the amount of tax for other social benefits. When in Depression, the government may increase the amount of tax charged in order to raise maximum funds to finance its projects.
3. The economic principle
The primary objective of taxation is to raise money for the government to finance its projects. Therefore, the administrative cost of collecting the tax should not surpass the amount to be earned. If so, the government will have diverted from its primary objective.
4. The principle of simplicity
A good tax system should be designed in such a way that individuals should able to understand on when and where to pay the tax. The payee should be able to understand the concept and terminologies used and how the government comes up with such a figure. Simplicity principle also holds during periods of tax collections. The government should design a simple way of collecting the tax. E.g. at the end of each month for employed workers. Etc.
5. The principle of diversity
A good tax system should be diverse. It should be able to capture areas that have not been previously taxed and introduce them into the taxation bracket. However, this principle needs to be done with utmost good faith as at times such moves may impede the economic development of major sectors of the economy.
6. The principle of Certainty
The amount to be charged should be certain. The amount should be well known by the payee so that he/she can prepare his /her budget without making effectively. The government should also be certain on the way in which the tax will be collected if it will be at the end of the month, beginning or n a daily basis. The certainty principle also allow the government to determine the amount of money that will be collected during given times
7. The principle of utmost good faith
There should be transparency in the way the government collects its task. The government should also conduct an excellent tax audit and avail it to the public.
In conclusion, any government can bank on the explained principles and develop an excellent tax system.